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New rules of calculation of interest from tax arrears from 1 January 2016

2016-01-29

On 1 January 2016, as a result of coming into force the Act on Amendment to the Act – General Tax Code and Certain Other Acts of 10 September 2015, the laws regulating calculation of interest from tax arrears were amended.

The fundamental change, but not the only change of significance, was the modification of the so-called reduced rate of interest which currently amounts to 50% of the basic rate. The rate is applied provided that two conditions are cumulatively met, i.e.:

  1. a legally effective adjustment of a tax return is submitted within 6 months from the lapse of the period for submission of a tax return (the previously applicable laws did not provide for any period),
  2. tax arrears are paid within 7 days from the date of submission of the adjustment.

The reduced rate applies also, among others, in case of application of a tax overpayment or a tax refund. Similarly to the previous legal state, the reduced rate does not apply when an adjustment of a tax return submitted after delivery of a notice of the intention to conduct a tax audit, and in cases in which there is no notice, after completion of a tax audit, and when an adjustment is made in the consequence of investigation activities.

In accordance with the transitional laws, the possibility of application of the rate amounting to 50% of the basic rate, in principle, concerns tax arrears occurred after coming into force of the amending Act – i.e. from 1 January 2016. However, in exceptional circumstances the legislator allows for application of the modified rules also to tax arrears which occurred in 2015, provided that a legally effective adjustment is submitted by the end of June 2016 and tax arrears are paid within 7 days from the date of submission of the adjustment.

Another novelty in the laws is Art. 56b of the General Tax Code providing for a penalty in the form of an increased rate of interest amounting to 150% of the basic rate applied to tax arrears concerning VAT and excise in case of:

  1. tax arrears found by tax authorities in the course of a tax audit or tax proceedings,
  2. an adjustment of a tax return which was submitted after the delivery of a notice of the intention to conduct a tax audit, and in cases in which there is no notice, after completion of the tax audit, or an adjustment made in the result of inspection activities. An additional condition of application of the increased rate is that the sum of tax liability, inflation of a tax overpayment or a tax refund must exceed 25% of amount due and be over five times the value of the minimum pay applicable on the day following the date of the expiry of due date of the liability or the period of the refund,
  3. finding by tax authorities in the course of inspection activities, a tax audit or tax proceedings that a tax return was not submitted, despite an owed obligation and failure to pay tax.

Furthermore, it is worth noting that the laws were made more specific, i.e. when a decision is revoked, a case is referred for reconsideration and the decision is found to be invalid, interest is not charged (e.g. for a period from the date of instituting tax proceedings to the date of delivery of a decision of authorities of the first instance, if the decision was not delivered within 3 months from the date of instituting the proceedings). In such a situation periods run anew from the date of receipt of case files and are not added up to the previous ones.

The introduced changes seem to be aimed at encouraging taxpayers to submit adjustments faster, as evidenced by the reduced rate amounting to 50% of the basic rate, and not to 75% as previously, and the limitation of the possibility of applying it to 6 months from the date of the expiry of the period for submission of a tax return. Also the penalty rate of 150% of the basic rate should force taxpayers to increase their care for correctness of their tax settlements. It is worth underlining that previously in the event tax authorities found errors in VAT settlements in the course, e.g. of inspection activities, a taxpayer had to pay interest calculated in line with the basic rate. In the current legal state the taxpayer will have to pay interest higher by 50%.